28 June 2001, 11:55  Asia FX Review: Yen remains weak, BOJ keeps policy unchanged

By Masataka Nakamura Tokyo, June 28 (BridgeNews) The yen was offered against the U.S. dollar and euro in active trading. The Bank of Japan decision to maintain the current monetary policy did not alter the weak tone of the yen. Concerns about deteriorating yen fundamentals weighed on the yen, prompting large-scale capital outflow of the currency.
The yen was well offered against dollar and the euro in Asian trade. Some U.S. players bought good amounts of dollar/yen while European names were large buyers of euro/yen. Japanese names also followed the yen selling with smaller amounts.
The Bank of Japan voted unanimously at Thursday's board meeting to keep monetary policy unchanged, keeping 5 trillion yen as its current account balance. Although BOJ said it would provide more funds into the market if there are signs of instability in the financial market. The decision failed to have much immediate impact on the market.
There is a feeling in the market that the yen carried a weak tone, regardless of the BOJ's decision.
Yasuji Yamanaka, deputy general manager of the treasury department at Nikko Trust and Banking said that the yen maintained weak tone, adding that the BOJ decision failed to change that.
The underlying trend is that increasing concerns about yen fundamentals are prompting capital outflow from the currency, dealers said Japan's industrial production data undermined the tone for the yen, though it had a limited immediate impact on the pair.
Japan's seasonally adjusted industrial and mining production fell 1.2% in May from the previous month, much worse than the Ministry of Economy, Trade and Industry's projection of a gain of 0.3%, the ministry said Thursday.
The data was also worse than the average analysts' expectation of a 0.2% drop.
The ministry repeated that industrial output is in a declining trend. It also said output is likely to rise 0.3% on the month in June, but may fall 0.1% in July.
Japanese shares ended Thursday's session lower with a lack of an easing by the BOJ. The Nikkei 225 Stock Average fell 149.10 points, or 1.16%, to 12,679.88.
In Thursday's session, option-related flow was one hot topic among foreign exchange traders.
There is talk that considerable amounts of options with the strike price of 125.00 will expire at Thursday's New York cut. Some believe USD/JPY will move higher to converge the 125.00 strike price through the NY cut.
Meanwhile, others believe dollar/yen will face strong resistance on the top side. They believe a rumor that some option players might start selling dollar/yen from high 124's to defend the 125.00 trigger. There are also various options related to the 125.00 strike and the 125.00 trigger. When dollar/yen approaches the 125.00 level, good amounts of two-way option transactions are highly likely.
In other foreign exchange trading euro/dollar fell from 0.8605 to 0.8590 ahead of rumored selling interest in the 0.8610-30 area. However, the downside move was checked by good euro/yen buying from European names through the afternoon session.
It later bounced to 0.8605 as euro/yen found support. Buy stops were noted above 0.8630, but more offers were seen at 0.8650. On the downside, bids were noted in the 0.8570-75 region.

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